Marcus Hook Development Park, Inc., In re

• Decision Date: 19 August 1991
• Docket Number: No. 91-3025,91-3025
• Court: U.S. Court of Appeals — Third Circuit
• Parties: , Bankr. L. Rep. P 74,217 In re MARCUS HOOK DEVELOPMENT PARK, INC. T.A. Title Insurance Company; Marcus Hook Business & Commerce Center, Ltd., assignee or successor in interest to Dennis H. Marchuk; Bell Savings Bank and Marcus Hook Corp., Appellants.

Page 261

943 F.2d 261

21 Bankr.Ct.Dec. 1684, Bankr. L. Rep. P 74,217

In re MARCUS HOOK DEVELOPMENT PARK, INC.

T.A. Title Insurance Company; Marcus Hook Business &

Commerce Center, Ltd., assignee or successor in

interest to Dennis H. Marchuk; Bell

Savings Bank and Marcus Hook

Corp., Appellants.

No. 91-3025.

United States Court of Appeals, Third Circuit.

Argued May 16, 1991.

Decided Aug. 19, 1991.

Robert G. Sable (argued), Lorie R. Beers, Sable, Makoroff, Sherman & Gusky, Pittsburgh, Pa., for appellee Marcus Hook Development Park.

Eric A. Schaffer (argued), Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for appellants Stephen J. Polaha, Eckell, Sparks, Levy, Auerbach, Monte & Moses, Media, Pa., for appellees Chichester School Dist., Chester Water Authority.

T.A. Title Ins. Co., Marcus Hook Business & Commerce Center Ltd., Bell Sav. Bank, Marcus Hook Corp.

Before HUTCHINSON, COWEN and GARTH, Circuit Judges.

OPINION OF THE COURT

COWEN, Circuit Judge.

This appeal follows an order of the district court affirming the bankruptcy court's denial of an objection to a motion for final decree. The objection was filed by Marcus Hook Business and Commerce Center Limited ("MHBCC"), Marcus Hook Corporation ("MHC"), Bell Savings Bank ("Bell"), and T.A. Title Company ("T.A. Title") (collectively the "Purchaser") in response to a motion for final decree filed by the debtor, Marcus Hook Development Park, Inc. ("MHDP"). At the center of the dispute are conflicting orders of the bankruptcy court which alternately approved the sale of a piece of property, free of any liens, to the Purchaser's predecessor in interest, and then reimposed a lien after the sale had been made. We will reverse the district court and order it to remand the case to the bankruptcy court so that the bankruptcy court may resolve this controversy.

I.

In December, 1983, MHDP filed a petition for relief under Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 1101-74 (1988). MHDP's sole asset was 35 acres of developed industrial real estate located in the Borough of Marcus Hook, Delaware County, Pennsylvania (the "property"). Delaware County (the "County") held a $125,000 tax lien against that property. By order of the bankruptcy court, one acre of the property was subsequently sold at a public bankruptcy sale on June 4, 1985.

Thereafter, MHDP began negotiations with Dennis Marchuk regarding the sale of the other thirty-four acres. On July 17, 1986, MHDP filed a motion to sell its remaining acreage to Marchuk free and clear of liens and encumbrances. All creditors, including the County, were served with a notice of the proposed sale. After receiving notice, the County advised MHDP that it would waive its priority tax claim and agreed to be treated as an unsecured creditor. No objection to the sale was ever filed by the County.

An order confirming the sale to Marchuk was entered by the bankruptcy court on August 14, 1986. That order expressly stated that "said sale is free and clear of all mortgages, judgments, liens and encumbrances." In addition, the August 14 order provided that the sale was duly advertised, that proof of publication and service had been filed with the bankruptcy court, and that notice of the sale had been given to creditors and other parties in interest.

Before the closing, Marchuk assigned his rights in the property to MHBCC. On November 24, 1986, closing was held, pursuant to which MHBCC received a special warranty deed for $560,000. MHBCC granted a mortgage upon the property to Bell. T.A. Title held the $560,000 in escrow, and provided title insurance to both MHBCC and Bell. MHC is the successor in title to MHBCC.

A month-and-a-half after the closing, MHDP and the Official Unsecured Creditor's Committee filed a disclosure statement in support of the proposed plan for reorganization. The disclosure statement provided that the "Debtor's real estate was sold under and subject to the continuing lien of the County of Delaware. The County's taxes shall therefore be dealt with by the purchaser of the property and the County shall not receive any dividend on account of its claims against the estate." Moreover, it stated that the County "shall continue to hold a lien against the property after the sale of the real estate. This claim will be dealt with by the purchaser. The County of Delaware will not receive any dividend from the estate." Despite the conflict between the August 14 order and the disclosure statement, the bankruptcy court entered an order on February 11 1987, which approved the disclosure statement. The February 11 order required that all parties in interest be served with the disclosure statement, but it is not clear from the record if the Purchaser was so served.

On May 7, 1990, more than three years after the February 11 order, MHDP filed a motion for final decree. Upon being served with this motion, the Purchaser filed a timely objection. Specifically, the Purchaser pointed out that the August 14 order and the February 11 order were inconsistent with each other, and requested that the bankruptcy court remedy the problem. After a hearing, the bankruptcy court granted MHDP's motion for final decree. The bankruptcy court overruled the Purchaser's objection for two stated reasons. First, it characterized the basis for the objection as a dispute between non-debtors, and held that such a dispute was neither a core proceeding nor a related proceeding. Second, the bankruptcy court held that it had no authority to vacate the February 11 order at this late stage of the proceedings. Thus, the bankruptcy court never dealt with the merits of the Purchaser's objection, denying relief on the grounds that it had no jurisdiction.

The Purchaser then appealed to the district court. Reasoning that the bankruptcy court's findings were not clearly erroneous, even though no such findings appear in the bankruptcy court's orders, the district court affirmed the final decree. It would therefore seem that the district court affirmed on the merits although the bankruptcy court never addressed the merits. Subsequently, this appeal was timely filed. ¹

II.

First and foremost, this is a case of common sense. There are two bankruptcy court orders which clearly contradict each other. The first says that the Purchaser acquired the debtor's property free and clear of all liens; the second reimposes the County's tax lien. Obviously, both orders cannot be given effect, at least not in this world. Presented with this rather confusing state of affairs, the Purchaser logically went to the source of the problem, the bankruptcy court, and requested appropriate relief. Stating that it lacked jurisdiction, the bankruptcy court took no action on the Purchaser's objection. On appeal, the district court reached the merits, affirming bankruptcy court findings that do not appear in the bankruptcy court's orders.

"As an appellate court twice removed from the primary tribunal, we review both the factual and the legal determinations of the district court for error. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981). Our vantage point is identical to that of the district court ... 'so we review the bankruptcy court's findings by the standards the district court should employ, to determine whether the district court erred in its review.' Id. at 102. Thus, in reviewing the district court's review of the bankruptcy court's factual findings, we, like the district court, employ the 'clearly erroneous' standard.... [T]he district court's legal determinations receive no presumption of correctness.

Resyn Corp. v. United States, 851 F.2d 660, 664 (3d Cir.1988). ²

First, we turn to the question of the bankruptcy court's jurisdiction. Although not clearly stated, one of the rationales cited by the bankruptcy court for its denial of the Purchaser's objection was a lack of subject-matter jurisdiction. It is well-settled that the bankruptcy court potentially has jurisdiction over four types of title 11 matters, pending referral from the district court: ³ (1) cases under title 11, (2) proceedings arising under title 11, (3) proceedings arising in a case under title 11, and (4) proceedings related to a case under title 11. In re Wolverine Radio Co., 930 F.2d 1132, 1141 (6th Cir.1991); Matter of Wood, 825 F.2d 90, 92 (5th Cir.1987). See 28 U.S.C. § 1334. ⁴ The first of these categories, cases under Title 11, "refers merely to the bankruptcy petition itself." Matter of Wood, 825 F.2d at 92. This action goes beyond the bankruptcy petition. See In re Wolverine Radio Co., 930 F.2d at 1141 and n. 14.

Thus, we are required to determine if this action falls within one of the other three categories, thereby conferring jurisdiction upon the bankruptcy court. It is not necessary, though, to fit the proceeding into one of these particular categories, since "they operate conjunctively to define the scope of jurisdiction." Matter of Wood, 825 F.2d at 93. Accord, In re Wolverine Radio Co., 930 F.2d at 1141. Hence, we need only determine "whether a matter is at least 'related to' the bankruptcy." Id.

A proceeding is related to bankruptcy if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy," Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) (emphasis in original). Accord In re Fietz, 852 F.2d 455, 457 (9th Cir.1988); Matter of Wood, 825 F.2d at 93; In re Dogpatch U.S.A., Inc., 810 F.2d 782, 786 (8th Cir.1987); In re A.H. Robins Co., Inc., 788 F.2d 994, 1002 n. 11 (4th Cir.), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986); In re Salem Mortgage Co., 783 F.2d 626, 634 (6th Cir.1986). A key word in this test is "conceivable." Certainty, or even likelihood, is not a requirement. In re Wolverine Radio Co., 930 F.2d at 1143. Bankruptcy jurisdiction will exist so long as it is possible that a proceeding may impact on "the debtor's rights, liabilities, options, or freedom of action" or...